econ final

Question 1

Current Account formula

Answer 1

• CA = TB + NFIA + NUT

Question 2

GNE formula

Answer 2

C+I+G measures country total spending on final goods

Question 3

GDP Y

Answer 3

C+I+G+X-M measures total production

Question 4

GNI

Answer 4

GDP+NFIA total payments to domestic factors

Question 5

GNDI

Answer 5

GNI+NUT=GNE+CA measures economys disposable income

Question 6

NUT

Answer 6

UTin-UTout

Question 7

TB

Answer 7

exportsgoods and services-imports goods and services

Question 8

NFIA net factor income from abrouad

Answer 8

exports of factor services-import of factor services

Question 9

exchange rate of country h and f Eh/f

Answer 9

1/Ef/h

Question 10

appreciation currency

Answer 10

if a countries currency appreciates MS decreases i increases and you can buy more goods in other countries

Question 11

depreciation of currency

Answer 11

MS increases i decreases and you can buy less in other countries

Question 12

CIP

Answer 12

I$=Ieuro+change in E^e

Question 13

which factors effect IS

Answer 13

government spending, interest, spot rate, prices and foreign prices, decrease in demand increases IS

Question 14

which factors increase LM

Answer 14

rise in the MS decrease in MD

Question 15

assumptions of IS LM model

Answer 15

The economy begins at long-run equilibrium, where the IS & LM
curves intersect.
• We then consider policy changes in the home economy, assuming
that conditions in the foreign economy (i.e., the rest of the world)
are unchanged.
• The home economy is subject to the short-run assumption of a
sticky price level at home and abroad.
• We assume that the forex market operates freely and unrestricted
by capital controls.

• Short-run model: which variables are fixed and which variables are allowed to change?
• The government behavior is exogenous (G and T are taken as given)
• Conditions in the foreign economy are exogenous (Y* and P* are taken as given).
• GDP = GNDI, which means that CA = TB (NFIA and NUT = 0)

Question 16

Balance of Financial Accounts FA

Answer 16

B-L =asset ex -add import

Question 17

Saving S

Answer 17

Y-C-G

Question 18

PPP

Answer 18

Purchasing power parity refers to the law of one price and says that a basket of goods will be the same price in different countries so that consumers can not benefit from arbitrage

Question 19

Balance of payments has three categories

Answer 19

KA+CA+FA=0

Question 20

KA

Answer 20

KAin-KAout

Question 21

ORT

Answer 21

if BOP>0

Question 22

Law of one price and absolute PPP

Answer 22

Pa=Ea/b*Pb

Question 23

Real exchange rate

Answer 23

P*spot for foreign country/ P us basket in forex

Question 24

relative PPP and absolute PPP

Answer 24

if absolute PPP holds then relative PPP holds but not the other way around

Question 25

cross exchange rate

Answer 25

uses three currencies Eab= (Ea$)/(Eb$)

Question 26

expected inflation

Answer 26

inflation of country 1 - infation of country 2

Question 27

PPP indicates That?

Answer 27

the exchange rates should equal the relative price level in the two countries and the real exchange rate should equal 1 also evidence for PPP is more geared towards long run

Question 28

Monetary approach in long run

Answer 28

explains price levels with money supply and real income interest and prices must be flexible monetary no good in short run

Question 29

time series graph longrun for increase in MS 5things

Answer 29

1)causes inflation an interest rates to rise and 2)real money to drop 3)price level jumps and 4)inflation increases 5)exchange rate jumps and rate of depreciation increases

Question 30

What causes and Increase to MD

Answer 30

an increase in real income

Question 31

permanent expansion in home money supply short run

Answer 31

permanent MS increase leads to lower i lower DR higher FR

Question 32

Permanent expansion in the home money supply long run

Answer 32

prices rise and money supply returns nominal interest returns DR returns FR remains sleightly higher but goes back from the SR

Question 33

the trilemma

Answer 33

Capital Mobility MOnetary autonomy fixed exchange rate

Question 34

Temporary home monetary expansion

Answer 34

causes home interest rates to fall and home exchange rates to depreciate

Question 35

factors that increase demand

Answer 35

fall t rise g fall i rise E rise P* fall in P

Question 36

IS curve

Answer 36

the IS curve slopes downward and to the right. This assumes the level of investment and consumption is negatively correlated with the interest rate but positively correlated with gross output.

influenced by G T i* spot, P* P when demands increases IS shifts right

Question 37

LM curve

Answer 37

y contrast, the LM curve slopes upward, suggesting the quantity of money demanded is positively correlated with the interest rate and with increases in total spending, or income.

shifts right when MS rises and MD falls

Question 38

IS curve shifters

Answer 38

increases to net exports, wealth, governemtn spending, shift IS right taxes increase shift IS left

MOnetary policy does not change the IS curve

Fiscal policy shifts IS

Question 39

LM curve shifter

Answer 39

Norminal money supply nominal interest rate increase LM shifts right.

fiscal policy does not change the LM curve

As price level increases LM shifts left
Monetary policy shifts LM

Question 40

National Income Identity/ Open economy identity

Answer 40

Y=C+I+G+CA

Question 41

Current Account Identity

Answer 41

S=I+CA or

Y-C-G=I+CA